TREASURIES-U.S. bond yields flat ahead of Fed statement

Reuters Staff

3 Min Read

* Focus on Fed's "considerable time" pledge
* Yields pare rise after biggest monthly CPI fall in 6 years
* U.S. oil futures edge lower, hover near 5-1/2 year lows
By Richard Leong
NEW YORK, Dec 17 (Reuters) - U.S. Treasuries yields were
little changed on Wednesday as investors waited to see if the
U.S. Federal Reserve's upcoming policy statement would maintain
its "considerable time" pledge on keeping interest rates near
zero.
The U.S. central bank's policy-setting group, the Federal
Open Market Committee, is scheduled to release a statement at 2
p.m. EST (1900 GMT) after a two-day meeting. Fed Chair Janet
Yellen will hold a press conference half hour later (1930 GMT).
Stronger data on domestic jobs and manufacturing have
supported the view that the central bank would consider raising
ending its near-zero rate policy in mid-2015, some analysts
said.
"They have set up the path for a rate hike unless something
really goes awry," said Robert Tipp, chief investment strategist
at Prudential Fixed Income in Newark, New Jersey.
But the weakness in Europe and Japan and slowing growth in
China pose risks for U.S. economic expansion and might cause Fed
policymakers to choose to not hike rates until 2016, some
analysts said.
The dramatic drop in oil prices, with U.S. crude futures
hovering at 5-1/2 year lows, has intensified disinflation
pressure globally, analysts said. Oil's retreat has caused
stress in stock markets and some credit sectors as well as for
energy exporters, including Russia, whose currency has seen a
near free-fall.
An early result of the steep decline in energy costs was the
unexpectedly big drop in the U.S. consumer price index in
November. The CPI's 0.3 percent fall last month was the biggest
in nearly six years, spurring buying in Treasuries and pushing
yields down from their initial highs.
"Today's CPI report is a reminder on how low inflation has
fallen," said Mike Lorizio, head of Treasuries trading at John
Hancock Asset Management in Boston.
The weak inflation outlook has hammered Treasury
Inflation-Protected Securities, whose value is referenced
against the CPI.
TIPS' yield gaps versus regular Treasuries, a gauge of
investors' inflation expectations, narrowed briefly after the
weaker-than-expected CPI data.
The five-year TIPS inflation break-even rate was unchanged
at 1.15 percent after it fell on Tuesday to 1.08 percent, which
was the lowest since September 2010, Reuters data showed.
Among nominal Treasuries, benchmark 10-year note yield
was 2.075 percent, up 0.4 basis point from late on
Tuesday, while 30-year bond yield edged up 0.5 basis
point at 2.706 percent.
January U.S. crude futures was down 12 cents at
$55.81 a barrel after it hit a 5-1/2-year low of $53.60 on
Tuesday.
(Editing by Peter Galloway)